The quality of money

I hear people around me worrying about the quantity of money the government is printing. I not only hear the talk, I worry about it too. But the real question is about the quality of that money. Are we printing credible dollars? Will people, organizations, nations still want to invest in our money? That is to say, will the people who have financed our economy the past few decades want to continue to do so? Do they perceive the dollar as a quality, credible investment?

If people around the world and in our country, poor and rich alike, continue to see (or begin to see again) the dollar as a credible currency to earn and invest in, and thereby enrich who ever holds it, then our government can print all the money it wants. We can print money, in other words, unless and until there's no one who wants it. The social demand for money is a significant, necessary basis of money.

One problem: The quality of American money has for a really long time been assumed by those who study it to be credible. As a result, right now, compared to the number of social scientists who study the quantity of money, which is many, there are incredibly few who study the quality of it: whether or not American money is credible just hasn't been a burning question.

Until now. I suspect things will now begin to change. Qualitative approaches to all things economic -- like money and marketing -- should begin to take off, as a result of current events (meaning the financial collapse and the question of America's economic credibility and how to re-store it). The interesting questions are how swiftly the intellectual adaptation will take place, who will drive it and benefit, and how.

Is the Federal Reserve providing a basis of stabilization? Alternative title: Can Citigroup make it?

US Federal Reserve assets

Maybe it's the scent of good news in the air, but I am thinking today about the institutional basis of a financial stabilization. Or let me put it this way: I wonder what kinds of institutions it will take to restore a steady flow of credit to Americans and American organizations. So, anyway, did I say good news? Here's some, I think: Citigroup stock value is up somewhere around 20 percent. More specifically, the bank is claiming to be profitable again:

Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose as much as 27 percent and helped spur gains for finance company stocks.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

Citigroup has logged five quarters of losses totaling more than $37.5 billion since it posted a $2.1 billion profit in the third quarter of 2007. Once the world’s biggest bank by market value, it fell below $1 in New York trading last week for the first time as investors lost confidence that the shares can recover after losses and a government rescue.

“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit, 52, said in the memo, adding that the price doesn’t reflect the New York-based bank’s capital strength and earnings potential. The company had $19 billion of revenue in January and February excluding writedowns that have already been disclosed, Pandit said.

Can Citigroup make it? On its own, I would say no: my sense is Citi has destroyed its social capital, its credibility. I mean, should we even consider trusting the CEO's earnings statements? It's hard for thinking minds to believe and have faith in Citigroup.

But maybe Citigroup can survive with the help of others. As the above chart lays out, the American government is now the direct lender of first resort to Wall Street -- as well as a Citigroup shareholder. This fact will matter in the coming months as the government could advance some much-needed credit-worthiness to Wall Street, most of all, Citi. I can envision a scenario in which the expansion of the Fed's balance sheet proves to be the basis of Wall Street's survival -- lending to these troubled banks not just credit, but credibility as socially beneficial capitalist institutions with solid long-term plans. So yes, I think Citigroup could survive. The US government got in the game and in doing so, I think it could ultimately restore the credit-worthiness of our private organizations.

Geithner announces broad outline of new TARP plan. Dow falls 400 points. The depth of the liquidity crisis even more apparent.

--After getting raked across the coals on television all day, Sec. Geithner's performance today is now being given as the reason for the tank in the Dow today -- 400 points last time I looked. Sec. Geithner looks to have some broad ideas and little confidence, at a time when the expectation was that he'd have specific policies and some confidence that they'd work.

--I understand President Obama and Sec. Geithner's (et al) reason against just taking over the banks is that it would be politically tricky. Is what the Secretary, and by extension the President, are going through today any more politically palatable?

--Beside the unwillingness to just take over the problem organizations, the reason for the Secretary's poor showing is structural: the bad assets in question are that deeply illiquid. They have a de-stabilizingly low market value. At this point, Sec. Geithner doesn't want to pay market values, and he doesn't want to use federal money to pay above-market values. Being committed to do one or the other was necessary to having a fully formed plan today. He wasn't, there was no plan, and the whole operation lost credibility for it.

--Nationalization is the only option I see. They should get to work on it. President Obama is the most credible social force in the world today. Credibility is what the banks need. A perfect merger. Let Obama's administration run things, and may they be creative.

Sec. Geithner getting raked across the coals

CNBC anchors are having their fun tearing down a government official. And it is true that Sec. Geithner in his statements this morning still provides no plan to fix America's banking problems. However, my reading of the situation tells me there is a real good reason the Secretary has no plan: he won't consider the only viable one -- full, honest, and proud nationalization.

America's private banking system has no credibility: it doesn't lead to growth but contraction; it causes rather than solves social problems; and it is mired in terrible public relations. The banks' troubles are bringing down the whole country's operation, from consumers, to companies, to the Treasury. To save the whole, the banks must be made over. New institutions must be created. The only way to do this, that I see, is for the government to seize the banks' assets, let the bad banks fail, let the good ones struggle to maintain their existence, and put our knowledge toward new ideas rather than bailing out old ones.

Finally, you can't simply 'put more liquidity in the market.' The problem is not a lack of money, but a lack of money movement. Liquidity is a multidimensional construct, not a unilateral one. The confidence to lend and borrow depends on credible laws, credible organizations, credible people. The existing banks don't have any of this. New institutions are needed. In the new world of American capitalism, credibility is not announced, it is socially decided.

One nasty thing about public relations: it often distorts knowledge

Public relations are dominated by a corporate personality. The objective is to communicate the credibility of an organization; you are judged by how well you do that.

If it takes it, you will tear down the credibility of another to protect your client's credibility. You are a corporate entity.

All these steroid stories coming out of the national pastime remind me of this. Baseball fans and media-types tearing down the steroid users. The steroid users trading the names of scapegoats to save theirs. The Roger Clemens public battle was especially brutal.

I wish we'd stop playing a purity game on these athletes. I wish men like Roger Clemens and Alex Rodriguez would come out and talk about their use -- their motivations, their fears, the effects, would they advise others use? Knowledge like this, created in an environment of empathy and trust rather than demonization and shame, would be invaluable.

Instead, the public uses morals to decide its judgment. And the men and the organizations hire marketing teams to create environments around them intended to portray themselves as moral. All the while, this moral outrage obscures the chance for new knowledge.

Credibility

To me, a real handicap of economic theory is that it has no way of studying the role of 'credibility' in helping determine economic outcomes. In any given economic context, the need for credibility on the part of the actors shapes the behavior as well as the consequences of the behavior.

For example, a few months ago the WSJ reported (in an article I fleetingly read and haven't found again, either on-line or hard copy) that a significant part of Sec. Paulson's reasoning for letting Lehman fall back in September was to maintain a semblance of free-market orthodoxy, particularly for public relation reasons. At least that was my reading of part of the report. (But again, I haven't tracked it down to read it again and confirm that.)

I found that provocative. Here's the Secretary of the Treasury, determining fateful Treasury policies -- the decision to let Lehman fall led to extraordinary consequence -- according to whether they conform to the sacred truths that the American public tells itself about their 'free markets.'

On one hand, it would probably suit us well to find a more realistic theory about our economy, if what we think actually matters for policy.

And on the other, it is remarkable how significantly public credibility shaped the Treasury actions in the first place. This is a good thing, but a scary thing, too. It's democracy, or at least democratic.

But again, if major economic actions are going to be decided, at least in part, according to the habits and truths of the public sphere, then it would suit us well for public knowledge to be updated and then disseminated more broadly, so we can think in new ways, to fit these new conditions. Economic theory, in other words, has a lot of work to do. It has to create new knowledge, and then disseminate it as new habits.

This is why when I view the perfect stimulus package I see it being an investment in American education. If the public is so important, we probably should get smart(er).

Economists confounded by the social fact of 'confidence'

Here is Robert Schiller writing in yesterday's WSJ:

President Obama is urging Congress to pass an $825 billion stimulus package as soon as possible. But even that may not be enough to stabilize the economy, since it fails to take into account the downward spiral of animal spirits that is underway and may continue to worsen.

The term "animal spirits," popularized by John Maynard Keynes in his 1936 book "The General Theory of Employment, Interest and Money," is related to consumer or business confidence, but it means more than that. It refers also to the sense of trust we have in each other, our sense of fairness in economic dealings, and our sense of the extent of corruption and bad faith. When animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people.

Here is John Cochrane, dismissing 'confidence' as a tenet of economics knowledge:

[Some] say that we should have a fiscal stimulus to “give people confidence,” even if we have neither theory nor evidence that it will work. This astonishingly paternalistic argument was tried once with the TARP. Nobody could say how it would work in any way that made sense, but it was supposed to be important do to something grand to give people “confidence.” You see how that worked out. Public prayer would work better and cost a lot less. Seriously, as social scientists, economists don’t have any special expertise to prescribe what intrinsically meaningless gestures will and will not give “confidence,” so there is no reason for anyone to listen to our opinions on that score.

Truth is, both Schiller and Cochran are right: 'confidence' -- or whatever you want to call the social-psychological category -- is both central to being able to understand or explain economic processes, as Mr. Schiller argues, AND peripheral to present-day economics theory, models, and concepts, as Mr. Cochran argues.

Indeed, to gain insight into 'confidence' -- and I agree with Mr. Schiller, via Keynes, that economics should try to gain such insight -- economists would have to be willing to turn to sociologists, whose well-established categories like legitimacy, power, authority, habit, the lifeworld, social structure, and interaction could help the economist learn a thing or two about the variabilities of human behavior and thought.

I read economists as much or more than I read sociologists. I value their knowledge. But I have a working hypothesis that their theories are not up to the task of understanding present problems. The chief culprit is their disinterest in the human mind and its social context. I also sense that economics practice suffers from a certain level of arrogance. This arrogance will not suit them well in a period like the one we are all of sudden in -- in which economics needs help from the very fields of knowledge they define themselves against.

Consumer confidence hits new low (again)

From Bloomberg:

Confidence among U.S. consumers unexpectedly fell in January to a record low as job prospects remained dim. The Conference Board’s index of consumer confidence fell to 37.7, from a revised 38.6 in December, the New York-based private research group said today. Records began in 1967.

A low confidence number doesn't mean the economy is bad. It means the economy's members think it's bad. In other words, right now the system and its elite participants are having a hard time successfully marketing the system's virtues to its mass participants. That could be because there are no virtues to market. But that doesn't sound right to me. What about marketing future growth? Marketing the idea that once the recession is over the future will again be bright? I mean, when has this not been true of America? 1946-1970 -- the era immediately following the Great Depression -- is often referred to as the Golden Age of Capitalism. Instead, the historically low confidence number tells me that the economy's members question -- or even doubt -- a similar breakthrough following the current downturn. This, to me, is significant. For it would truly be a sea-change in the history of mankind if the American economy didn't turn back up at some point in the near- or medium-term future. Is this sea-change what we are currently living through? If so, the confidence numbers are spot on. If not, then we need to get a collective grip, survive the downturn, and build new institutions that will re-grow the wealth we have lost and will lose over the next few years.

In any event, the social-psychology of the system's membership is what 'consumer confidence' measures. It does not measure the economy's fundamentals themselves. Now, the fundamentals matter, because it is those fundamentals -- job prospects, credit prospects, inflation expectations, investment futures -- that the members are interpreting when they describe themselves as confident or not.

Creating a basis for credible economic growth

For some time now, I have been constructing a two-part (hypo)thesis about the future of the US economy. I am still putting together the pieces, and learning as much as I can, but here it is: About a year and a half ago, after three years of significant study, I began to say out loud to people willing to hear things like this, that within the next five to ten years the dollar would face a day of significant reckoning. I began to believe this because the massive growth of GDP and expansion of the money supply the past three decades have been, as I began to see it, the result of illegitimate and unsustainable systemic actions by the country's elite economic actors. In short, we have borrowed too much relative to how much we have produced. So our economic growth has lacked credibility: the reality does not match the myths we have told ourselves, namely, that our 'fundamentals were sound.'. As soon as, my hypothesis went, the relevant participants in the world economy recognized this -- say, the American government, the Chinese government, American investors, foreign investors -- major change would then be upon us in terms of the dollar and Americans' purchasing power.

Let me explain some of the details, as I see them. Our growth the past three decades has been disproportionately greater than the production of valuable goods, services, or knowledge that should be its basis. And our money-supply expansion has not been the result of greater gold reserves. Rather, it is the result of international political power, the 'right' to disproportionately shape the world's exchange rates, and massively unbalancec capital flows toward US bond markets. In short, we've been living on credit because the rest of the world -- especially China -- have been financing and re-financing our debt.

As such, our growth and monetary actions have been the result of a massive credit-grab unprecedented in the history of mankind.

This is why the relationship between the US and China strikes me as so important, and why I so often write about it in this space. China is the reason we've been able to engage in this credit-grab. Without China we likely wouldn't have been able to so immensely leverage our capital and expand our bottom lines. Therefore, if the relationship between the US and China changes, or is changing, and I think it is, this is a major event. The reason: China's willingness to grow its surplus, constrain its population's standard of living, and finance the US dollar through long-term treasury purchases is the single biggest basis of American growth during this era. As soon as China changes these actions, the American economy will return to a level of wealth more proportionate to the value we add to the world economy through our production of goods, services, and knowledge. We will still be wealthy, but not nearly like we've experienced the past decade. My sense is that America is slowly returning to a more production-based economy, while China will become more consumption-oriented.

This will put the world's economy in a better balance, and America's economic growth -- once we can get it started again -- will be more legitimate, sustainable, and equally distributed within our population. That is, our growth will again be credible. But our standard of living will recede for the next decade or two. How much it will recece, I don't know. We'll have to wait and see.

As a result of all this, the most important thing we can do is recognize that credibility is a multilateral construct. Credibility exists in the eye of the beholder. We cannot force other people around the world to interpret the US economy as legitimate. We cannot force them to behave in a certain way. We can't forever expect the rest of the world to interpret their own economic interests as financing ours. Especially if we continue to act irresponsibly with bad loans and even worse wars. We must create an economy that, once again, inspires confidence in the minds of others. Only after we have created this credibility, will our standard of living begin to return levels we've grown accustomed to.

To this end, we should immediately begin to build the social insitutions it will take to create the goods, services, and knowledge that the whole world craves, and that the US is in the best position to produce. Less finance, more practical creativity.

More on social communication of the unemployment number

Ok, yesterday I wrote a quick post suggesting that CNBC reported the new unemployment rate (7.2) and December job losses (524,000) in an irresponsible, perhaps even outright manipulative fashion. The frame they used to convey the data was 'the numbers are not as bad as they could have been.' I argued this was not objective reporting, but subjective evaluation, given with little or no evidence that the important subjects (traders, investors, consumers, employers) actually thought this way.

Here's another problem with media representation of new job/unemployment numbers, though this is a general problem not specific solely to CNBC. In short, we need to stop talking about the unemployment rate as if it alone gives us the data we need to make sense of reality. The offical unemployment rate is actually a quite narrow statistic. It tells us something about how many people have been laid off and are now actively looking for employment. To get a fuller picture, this number should be combined with what the government calls 'U-6' -- which represents "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers."

The official rate (the narrower number) has risen from 4.8 percent in December of 2007 to 7.2 percent in December of 2008. One in every 14 of us is completely unemployed and actively looking for work through agencies or receving unemployment insurance.

The U-6 rate has risen from 8.7 percent last December to a rate of 13.5 percent this December. The economy, that is, is under-performing for one in every 7.5 of us. Put another way, one in every 7.5 of us is under-employed -- part-time but wanting to be full-time, unemployed and looking for a job, or unemployed and not looking for a job.

In sum, if we want the truths we tell ourselves about ourselves to match the reality that we find ourselves up against, the offical unemployment rate is not good enough. There are broader data-points that we can, and should, be using to fill in important holes.

Bad analysis? Or outright deception?

CNBC and the Unemployment number

While working at home today, I heard the following stated on CNBC over and over: that while the unemployment numbers that came out this morning were bad, they weren't quite what "the whispers that were going around the trading floor were saying about how bad they could be." I heard a variation of this sentiment, using the word 'whispers' at least three times. The argument was that because this jobs number wasn't as bad as the fears, the stock markets weren't going to take too hard a hit, or would even surprise on the upside.

This was either really bad analysis, or outright deception.

First, I never saw CNBC present any real evidence that investor psychology today saw relief in the jobs number.

Second, the number was horrible and a minimal amount of effort would reveal it as such. For example, let's compare the announced number with the whispers about what the announced number could be. It was released today that December saw us lose 524,000 jobs, less than what worried the so-called whisperers, who feared that the number could be 600,000-700,000. Not so bad, they were reported as saying (I mean, whispering).

Not quite. What CNBC didn't report was that the numbers for October and November were revised significantly downward. (Or if I missed it, they didn't report these revisions as often as they reported the relief of traders as a result of the "low" 524,000 job-loss.) According to the government, October is now seen to have lost 103,000 more jobs that originally thought. And for November, the job losses are 51,000 greater than thought. Together, that's another 154,000 jobs. So, add those to the December numbers. 524,000 + 154,000 = 678,000 job losses announced today. That's right in line with the fears, indeed toward the high side of the whispers.

I guess investors/traders are smarter than to be fooled like that. Despite the positive framing of the job losses, the Dow was down 143 points, and the S&P was down over 2 percent.

The worst economic analysis of the year

2008 is almost over, mercifully so, if the state of the US economy is your point of reference.

The end of a year, I like to think, is a natural moment for reflection. And upon reflection, it takes little to imagine that this column, written by Donald Luskin, is the worst analysis written on the American economy during the year that is now passing. While reading it -- the headline is 'Quit doling out that bad-economy line' -- keep in mind that the column ran in the Sept 14th edition of the Washington Post. The very next day Lehman Brothers went bankrupt, and -- well -- the rest is history of the sort that we get to live right through. Also, keep in mind that a few months later it was announced, officially, that America is in the middle of a recession that began in December of 07. That's right -- the entire 2008 was one big contraction. But you wouldn't know that from reading Mr. Luskin, the author of the worst economic analysis of 2008.

Here's a quick excerpt:

There have been 11 recessions since the Great Depression. And we're nowhere close to being in the 12th one now. This isn't just a matter of opinion. Words -- even words as seemingly subjective as "recession" -- have meaning.

In a new working paper, economist Edward Leamer of UCLA's Anderson School of Management shows that changes in the unemployment rate, payroll jobs and industrial production almost precisely explain every recession as officially determined by the National Bureau of Economic Research. At present, only the unemployment rate exceeds the recession threshold. The other two factors are far from it. According to Leamer's paper, we'll only fall into recession "if things get much worse."

This would suggest that anyone who says we're in a recession, or heading into one -- especially the worst one since the Great Depression -- is making up his own private definition of "recession." And probably for his own political purposes.

McCain campaign adviser and former U.S. senator Phil Gramm was right in July when he said that our current state "is a mental recession." Maybe he was out of line when he added that the United States has become "a nation of whiners." But when it comes to the economy, we have surely become a nation of exaggerators.

Yet Gramm was pilloried for his remarks, and McCain had to distance himself from his adviser by joking that in a McCain administration, Gramm would be ambassador to Belarus. What does it say about our nation that it has become political suicide to state the good news that our economy is not in recession?

Whatever the political outcome this year, hopefully this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we're on the brink not of recession, but of accelerating prosperity.

Sarah Palin should subtly disavow Joe the Plumber

Apparently Joe the Plumber was on a radio show the other day trashing John McCain and praising Sarah Palin. I have no stake, but Sarah Palin needs to distance herself from the nonsense that is Joe the Plumber. I don't know Joe as a man, but the Joe-the-Plumber character he plays in the media is a dope. He symbolically represents stupidity and ignorance. Some politicians, like President Obama and Sen. McCain, have the legitimacy as people seen as smart to make overtures, if ever so subtly, with what Joe the Plumber represents. For President Obama and Sen. McCain, reaching out to him is an attempt to expand their range of supporters while spending replenishable political capital.

At the present moment, Sarah Palin has none of that smart-person legitimacy and does not have such political capital to spend. That could change, but right now, the Joe the Plumber crowd is Gov. Palin's base. Gov. Palin thus has a different task concerning JP's stupidity: she needs to dissociate herself from him a bit. His symbolic meaning is such a turn-off to all but a narrow range of Americans, that to expand her range of supporters means she cannot be seen as associated with him. To have any chance at the presidency in 2012 or 2016, Gov. Palin needs to separate herself from the character named Joe the Plumber. She needs to do so subtly, but unquestionably.

To win in the future, you must run to the center, Governor.

I'm in the minority here, but I think there are clear ways that you can do that.

McCain the Faux Maverick

McCain . . . has the amateur chess player's weakness for making an impulsive move just to see what will happen: thus his eleventh-hour intervention in the Wall Street crisis negotiations. In chess what almost always happens after the impulsive move is doom.

Russel Baker, Oct 7 2008, NY Review of Books

The last thing I want to do is pile on a man who just lost the job he wanted more than any other. Sen. McCain's life-ambition, so it seems, was to be commander-in-chief of the US military. And just because he's a politician, and ran a typical politican's campaign, doesn't mean he's not mending a broken heart right now.

But I want to say something about Sen. McCain's so-called 'maverick' persona. A maverick, by definition, is an individual that strays from the pack. An individual who takes his or her own path to wherever it is he or she wants to go. An individual who decides for himself where it is he wants to go in the first place.

The world is a tricky place, however. Getting anywhere requires reading the tea leaves. As such, it is almost impossible for an individual to succeed when he has only his own wisdom upon which to rely. An individual who relies on himself for inspiration must be able to read his environment all by himself, or be condemned, as the quote above puts it, to the lonely path of "doom." It is the trickiness of the real-world, not weak-minded pansiness, that explains why most people eschew being a maverick and turn to company. Life ain't an easy road when you travel it alone.

So what does Sen. McCain's record tell us about the quality of his 'maverickness'? Well, let's see. Sen. McCain has run for president twice. It strikes me that, both times, he has spectacularly failed at reading his environment for what it was. In 2000, he ran an 'Obama campaign' in a Bush Environment. In 2008 he ran a 'Bush campaign' in an Obama Environment. What I mean is, in 2000 rabid partisanship ruled. McCain ran a centrist, can't-we-all-get-along campaign. In 2008, there was a strong anti-partisanship-backlash, put in motion by Barack Obama in his 2004 speech, when he said:

We don't have blue states, we don't have red states, we are the United States

But 2008 saw Sen. McCain run a campaign in which he ignored what was on people's minds -- how to fix problems in a spirit of bi-partisanship. Rather, Sen. McCain focused his campaign on his opponent's questionable patriotism and the made-up charge that his opponent was a socialist. To top it off, he took Sarah Palin --an unknown, attractive, fresh voice -- and turned her into his attack-dog VP. What a waste.

The point is this. The last thing America needs following President Bush is a go-it-my-own-way president whose own way is ignorant of real-world facts and knowledge.

In contrast, millions upon millions of Americans made the right choice in choosing Sen. Obama. Sometimes with the pack is the wise way to go.

A real quick word on Gov. Sarah Palin's future

I wish people would stop calling Gov. Palin 'unqualified' for the presidency. The Constitution lays out the qualifications for the office, and she meets them all.

The word people are looking for is 'unprepared.' Gov. Palin was woefully unprepared to be president. She simply knew nothing about national politics, international relations, party dynamics, and media norms.

Looking forward, Gov. Palin's unpreparedness presents her with a problem and an opportunity.

First, the opportunity. To be a viable candidate, she needs to spend the next four years learning a thing or two. She should begin by poking fun at herself for her performance. She should admit her unpreparedness, and then quickly add something to the effect of: "Hey, I was just doing the role that McCain wanted me to do. I was a team player. Going ahead, everything I need to know I can learn. And I will learn it. I am extremely hard-working, and I am always willing to admit my faults and work on them. I will be back, and I will be a better, more prepared candidate in the future."

Now, the problem. Americans' perceptions of Gov. Palin were shaped solid during this campaign. This is a problem because the McCain campaign used her. She was their attack-dog, and now she looks like a fool for doing the dirty-work that Sen. McCain would not do himself. As a result, Americans think of her not only as lacking knowledge. Perhaps more importantly, they think of her as a highly divisive figure. And in the current 'Obama' environment, divisiveness simply won't get the job done.

In the end, Gov. Palin should have refused the VP opportunity. She should have been more aware of just how unprepared she was. But that's water under the bridge. Now she has to be vigilant. She has to learn something. She has to articulate to Americans that she was just playing the part that Sen. McCain asked of her, and that truly, she is a bi-partisan get-things-done kind of politician. And most of all, she has to gain back a semblance of dignity.

She has to do all these things, and soon. It won't be easy, but it's not impossible.

I'm kind of rooting for her. I see her as a figure who, if she gains knowledge and regains her bi-partisan credibility, could bring the Republicans back from the dead.

But she's got to quit being the know-nothing attack-dog of the Hannity-Limbaugh-Bush wing of the GOP. Run to the center, Governor!

One more thought on this month's drop in consumer confidence

We are being told today that consumer confidence in October has dropped to its lowest level since the statistic began being kept in 1967. I don't doubt it's true, as I wrote earlier. But we have to think for a second what this statistic attempts to capture. Put most simply, it measures the way we as individuals interpret the economic environment around us.

Now, consider the difference in the environment between now and 1967. Chief among the many differences is the rise of communications media. As a result, there is significantly more communication today -- on TV, on the internet, in magazines, blogs, newspapers, on YouTube -- about the 'bad' economy than there would have been about the 'bad' economies of the 1970s, 1980s, and even the 1990s -- and certainly more than way back in 1967. Let's put it this way: There is far more influence on the way we interpret our environment today -- in our media age -- than in past decades.

Today economic organizations have to struggle to put forth a constant, 24-7 marketing campaign. They do this to draw consumers and grow. And they do it out of necessity -- that is, they do it to survive. Today's world is a communicative world. The organization that ignores this reality will not be around long.

Finally, it is not just organizations who must market their legitimacy to publics. The system itself faces a difficult communicative environment. The system's need to appear legitimate to its members is in crisis right now, as the consumer confidence numbers suggest.

In sum, the line designating the objective structure of the economy and the subjective judgment of the economy is becoming harder and harder to deduce. Economic analysis must take this objective-subjective blurring into consideration or, quite simply, the analysis is worthless. Communications media are not externalities that analysts can try to include in their analytical models about the system. Communications media are at the center of the system.

As such, all this is why economic sociology -- the willingness to put social interaction, individual sentiment, insitutional action, organizational structure, as well as systemic incentive at the forefront of economic analysis -- is so key to piecing together our crumbling system of private enterprise.

Consumer confidence is lowest in the statistic's history

The Economic Environment and the Mind

I go to the supermarket to buy financial newspapers once or twice, sometimes three times a week. Lately, a new experience has emerged. When I place the WSJ or the FT in front of the cashier, he or she (usually she) comments on the economy and/or the headlines on the front of the paper. The tone of the voice is not one of small-talk. Rather, there is a sense of uneasiness. I get asked questions. What does this mean? How bad is it going to get? And get told stories. My son is moving home because he lost his job. Or, I am afraid my son is going to have to move home if he loses his job. Americans, all of us, are feeling the pinch. The American psyche is is in the process of coming to grips with a brave new economic world.

A systematic study of this psychology was released today -- a measure of 'consumer confidence.' From an AP report:

Consumer confidence plunged to its lowest on record in October, a private research group said Tuesday, as stock markets dropped sharply and companies laid off workers.

The Conference Board said the consumer confidence index fell to 38, down from a revised 61.4 in September and significantly below analysts' expectations of 52.

That's the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967, and the third-steepest drop. A year ago, the index stood at 95.2.

Americans are indeed feeling the pinch.